Break-even point/cost volume analysis (CVP) is a way of comparing the income level values that an entity requires to serve its customers by delivering an outgoing value of the same amount. This implies that breakeven point for Mobile Access Consumer Services Business Plan (MACS) is $55,822 if the fixed cost is $50,271. On the other hand, the breakeven point could be $45,000 if there is a reduction of total costs. Total costs include both fixed and variable costs (8.3, p.26 case study). This is in the assumption of cost deviation by 10%.
When Will You Break Even?
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Breakeven analysis relies on a number of items the Mobile Access Consumer Services Business Plan ought to produce and sell so that revenue and the cost balance. Breakeven point analysis is used in accounting and economic decision making.
Breakeven points can be calculated for a single product or for multiple products. These breakeven points can be used in circumstances where shareholders of Mobile Access Consumer Services Business Plan need to become realistic requiring space timeframe for making a quality decision. The Mobile Access Consumer Services Business Plan may adopt breakeven points if it is deciding the possibility of outsourcing. This can be attributed in its strategic management and planning services like quality assurance programs that might be expensive. Cost maintained fixed holding revenues equal to the expenses can be used in determining the potential of the business. This guides the management on adopting the best decision of outsourcing.
Mobile Access Consumer Services Business Plan can break even to evaluate its customer profitability. This strategy may guide it to determine how much guaranteed returns can be expected in a monthly basis in terms of profit recorded previously. Breakeven points can be used to determine whether the Mobile Access Consumer Services Business Plan potential is fully utilized. This occurs it may want to change its current production capacity in order to exceed profits of $70,000. Breakeven points are useful for capital budget decisions, which enhance fair distribution of Mobile Access Consumer Services Business Plan revenues to enhance maximum possible returns. Breakeven can be used to gauge the products marketability and show whether to venture in other advertising methods like online marketing.
Breakeven points are used by the Mobile Access Consumer Services Business Plan management to set its pricing policies. Breakeven will help the company to determine the sales incentive programs to adopt in order to enhance profitability of the entity. Breakeven point is capable of calculating the impacts that will occur if prices and costs are deviated from the averages. This helps it to evaluate and monitor its operations on a routine basis. Breakeven point proves sufficient in determining the minimum number of transaction to complete in a daily, weekly or monthly to breakeven. Breakeven also helps the management and research and development team to decide modification composure of a product. Since, it will reflect on the cost changing and the impact likely to be resulted.
Assumption of Breakeven Analysis
Payroll fixed cost remains constant at $36,000 and there are no economies of scale. This implies that there is demand elasticity and prices remain constant no matter the volume sold. Selling price remains stable for that particular period. The CVP evaluates a single product or constant sales mix. The inventory withheld does not appreciate or depreciate and variable cost per unit remains the same. Fixed cost and variable cost are considered separately and the only factor that can affect cost is volume (Shim et al, 2007).
In the breakeven chart, breakeven can be computed using an equation or graphical approach. In the case study presented, the breakeven point can be formulated using variety of formulae based on the provided information. The case study provides sales in numbers; therefore, breakeven point is calculated as, fixed cost/contribution to sales ratio. In the case study presented, the forecasted break-even point can be obtained by dividing fixed cost with contribution to sales ratio. Contribution to sale ratio can be derived by dividing contribution obtained ($141,833) with sales forecasted ($157,497). This gives 0,9005 (to 4 decimal place) as the contribution to sales ratio. Therefore, the breakeven sales is derived by dividing fixed cost with contribution to sales ratio ($36, 000/0,9005) giving 39,977.79 as the breakeven point. This is in the reference to the forecasted breakeven point. The guidelines of breaking even hold that, any increase in selling price lowers breakeven in sales. An increase in variable cost will automatically increase the cost of breaking sale even. In addition, an increase in fixed cost increases breakeven sales (Shim et al, 2007).
Sales Forecast 1st year by month, 2nd year and 3rd years by quarters
Risks of not reaching these forecasts
Sales forecast is the expected levels of Mobile Access Consumer Services Business Plan sales. This is based on the adopted marketing plan and assumed marketing environment. Forecasting can be either macro or micro. Macro-forecasting deals with the entire market in relation to demand and supply patterns. Micro-forecasting deals with the unit sale forecasting. It determines the current market share composure in a particular industry and what is likely to happen in future (Riley, 2012).
Failure to reach forecast assessments can be risky to the Mobile Access Consumer Services Business Plan as individuals who contribute to sale forecast are less likely to review the failed forecasted plan to determine whether the plan could be improved. The forecasted plan is likely not to be compared of failed consistency, which may act as a breaking ground once that loophole is rectified. Performance measures to evaluate individual self-assessment are likely to fail as it produces little support for the forecasted plan.
Business performance may go down and return on investment declines. This poses a threat to investor who may prefer venturing in another business entity rather than incurring losses. The firm may lose its stakeholders confidence due to poor forecasting. Consequently, the firm might have difficulties in obtaining credits and loans from financial institutions. The reputation of the firm can easily be tarnished making it lose its customers to its competitors. The Mobile Access Consumer Services Business Plan also risks having poor customer service and higher costly supply chains due to failed forecasting (Cafferky & Wentworth, 2010).
Communication systems are likely to suffer within the company. People in the management might get frustrated and start endless arguments pointing accusing fingers to others. This can have negative impacts on future performances.
Important Components of Sales Performance to Reach These Goals
Every set goal must be in line with the winning sales organization. This means that the Mobile Access Consumer Services Business Plan should use its goals to drive out results. Strategy component should be used to demonstrate values to customers in order to create competitive advantage. Attracting, recruiting and retaining talented workforce can also be a component that builds a sales culture nurturing learning and development. Sales people should also be provided with tools and sufficient information in order for them to meet customer needs as well as Mobile Access Consumer Services Business Plan set goals. The company should implement a sales compensation program that motivates hard working sales people. Also the Mobile Access Consumer Services Business Plan should set fair and realist goals that are consistently achieved. The sales strategy should also be used to entail customer competitiveness with other relate organizations, and the Mobile Access Consumer Services Business Plan should also embark on analytical tools, which will constantly identify improvements in sale force that will result to sales effectiveness (Zoltners et al, 2009).
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